Dubai: The UAE’s IPO boom has played out like this - a company announces its decision to list on the DFM or ADX; opens for subscription; and then almost instantly hits over-subscription levels. Some of the listings of the last two years have set new highs for the levels of subscription they have drawn in.
A common thread running through all of them is the ever increasing levels of interest from retail investors, many of whom are first-timers when it comes to participating in IPOs here.
Another common element in all of these IPOS is that the percentage available for retail investors are nowhere near what the demand is. So, is it time for UAE companies thinking to go private started setting aside more for retail subscriptions? With blockbuster IPOs from the likes of LuLu Group and potentially Etihad Airways closing in on the horizon, that’s one big question everyone is asking.
Amer Halawi is the Head of Research at Al Ramz, the brokerage and investment firm listed on DFM, certainly hopes that change is coming. “We are in contact with CEOS and CFOS of companies that want to list - and everybody wants to understand the retail investor’s intention,” said Halawi. “Every prospective company wanting to list wants to engage more with retail investors and portfolio. And crack the retail investor code.
“Truth is, very few people know how to do it.”
Currently, retail investors get to have about 5-7 per cent of the stake that’s offered in the IPO, with a few going up to 10 per cent. The overwhelming emphasis among listing companies in the UAE is to mop up funds from institutional investors, and once that’s done, ensure they have their interest for the longer term. (On DFM, for instance, institutional funds drive 65 per cent of the volumes.) In other words, less of the volatility their stocks would be subject to when driven purely by retail investor buy-and-sell tactics.
“The weight of institutional funds in UAE capital market trade flows is increasing,” said Halawi. “So, while everybody is watching what the retail investor is doing, each of these companies are tracking the MSCI (Morgan Stanley Capital International) Indices and their weighting in them.
“At the same time, the split between institutional and retail investments in UAE stock market has moved from 20:80 historically to 35:65.” (The MSCI indices are a collection stocks from the developed, emerging and frontier markets as defined by MSCI. From the UAE, the likes of Emaar, FGB and some of the ADNOC listed subsidiaries figure on the index.)
Loans for stock investments
Another trend that continues to run hot in the UAE IPO space is retail investors gunning for loans to take part in the stock offers. (Irrespective of what their actual allocations might turn out to be. In most cases, the final allotments will be even less than the ‘minimum’ promised because of the sheer level of over-subscription.) Whatever the case may be, retail investors will continue to queue up for more loans - and banks will be only too willing to help them out. “There’s absolutely no evidence that’s going to slow down,’ said Halawi.
“The banking sector is doing phenomenally well in the UAE, and the system’s flush with liquidity. You get SMSs from the banks all the time to raise your credit card limit, take on loans, etc. There’s heavy competition from banks competing for a proportion of your salary.
“There is an appetite from everybody to give money to everybody else. That’s not going to dry up, and that’s plainly showing in the levels of over-subscription for IPOs. Where you have 50-60 times the size of IPOs over what the companies had set out to raise.”
Private companies to the fore?
The UAE stock markets is lining up for another inflection point. If the initial wave of IPOs since 2022 were driven by government owned enterprises going public, there are signs that private companies are ready to take over the baton. Spinneys, the Dubai based grocer, certainly made that point clear, and soon, Lulu will soon be basking in the IPO limelight.
“This is a trend which is here to stay, if I were to bet on it,” said Halawi. “The UAE stock market is maturing and the transition of private companies going public should pick up steam.
“As to whether tech companies will be a major part of this, this trend needs confirmation. Even now, it remains marginal in the make up of the UAE economy. If it changes, it will not be immediate.”
All eyes on aviation-linked floats
One sure blockbuster would be when Etihad Airways announces its IPO schedule. “Etihad coming to market would be significant milestones,” said Halawi. “That’s sizeable any which way one looks at it. This is where the UAE IPO pipeline seems to be headed for next.”
